Jobs Report Confirms Employment Devastation

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Economic Report Monitor #8
April 3rd. 2020

From FiveThirtyEight

After two weeks of troubling unemployment benefits reports totaling 9.9 million, the jobs report for the month of March is released. The Bureau of Labor Statistics saw total nonfarm payroll employment fall by 701,000 in March shooting the unemployment rate up 0.9% to 4.4%. Overall, the number of unemployed persons rose by 1.4 million to 7.1 million. That number was mostly boosted by temporary layoffs as those increased from 900,000 to 1.8 million while permanent job losses increased only 177,000 to 1.5 million. This is an important distinction as more temporary than permanent layoffs should support a speedier recovery. Together with a large increase in temporary layoffs, part-time employment was up 25%, or 1.4 million suggesting there may be some relief for workers if a structural shift occurs between industries that are shut down and others that are seeing surging demand. Another interesting thing to note about the March jobs report is the civilian labor force saw a steep 0.7% drop, or -1.6 million, causing the unemployment rate to increase faster. Of course, this is likely the beginning and data in the next couple reports depends on how quickly the stimulus package can be deployed to cover payrolls at distressed businesses.



No businesses are more stressed than small businesses at the moment as a report from MetLife and the US Chamber of Commerce suggests. About 64% have shut down temporarily or expect to shut down temporarily in the coming weeks. While most businesses expect to reopen, 43% of them believe they have less than 6 months before the temporary shutdown becomes permanent. As cash flows for some businesses have essentially vanished, comfortability with current cash flows has dropped significantly. This report specifically saw only 59% of businesses comfortable with cash flows versus the 80% they found at the beginning of Q1. To solve those problems, small businesses were mostly in favor of straight-up cash injections into the economy instead of the relaxing of taxes or regulations. The report found direct cash payments to Americans (56% favorable) and SBA disaster loans (30% favorable) as the first and second preference of relief programs. Both programs have already been passed under the CARES Act, but the new problem becomes deploying them swiftly and efficiently so that the stimulus effect is the greatest. With 59% businesses saying that have a year or less before they shut down permanently and 29% saying they only have 2 months, the clock is ticking.

After a couple rounds of manufacturing PMIs, IHS Markit and ISM come out with their Services and Non-Manufacturing reports for March. The IHS US Services PMI was significantly worse than its manufacturing counterpart. The index ticked down almost 10 pts from 49.4 pts to 39.8 pts. Some 2008-2009 comparisons were made as output fell at a pace never seen before and employment fell as fast as Dec 2009. New order declines lead to a sharp order backlog decline spawned by both domestic and foreign demand collapse. Confidence was the lowest ever with no change expected by businesses in the next 12 months. Together with the manufacturing report, IHS Markit Chief Business Economist Chris Williamson suggested "the survey indicates that the economy contracted an annualized rate approaching 5% in March" and updated the 2020 US GDP forecast to -5.5%. 

The ISM report was slightly more optimistic with the composite index dropping just 4.8 pts to 52.5 pts in March, but only because of a strong increase in supplier deliveries. Business activity and new orders saw sharp declines of -10.2 pts and -9.8 pts to 48.0 pts and 52.9 pts. Employment was also down a steep -8.6 pts to 47.0 pts. What stuck out the most about this specific PMI compared to others, relating to both service and manufacturing, was an acute drop in inventory. Imports, inventory, and inventory sentiment all fell double digits into contraction most likely caused by a severe shortage of medical supplies and PPE equipment noted by the healthcare industry. Most other industries saw effects from a slowdown in demand caused by the lockdown and concern for managing their workforce as they seek to stay healthy. This particular index feels like it should be lower.

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